Evaluating projections of labor force participation rates

Four of the five projections of the labor force participation rate—the proportion of the population working or looking for work—were higher than the actual. As the chart indicates, the aggregate labor force rate was below 68 percent in 2000, though three of the projections anticipated that it would exceed 68 percent in 2000.

From the projection made in 1988 up to 1994 the error in the aggregate labor force participation rate decreased for each projection. However, the 1986 projection was the second most accurate.

Comparing men and women, it is clear that men’s rates were more accurately projected than those of women. All of the projected labor force participation rates for women were high.

As the labor force rates of men change more slowly than those of women, it is easier to accurately project their labor force participation rate. This slower rate of change for male rates may be ending for older men.

A variety of incentives exist that could result in higher labor force participation rates for retirement age men. These include a change in the normal retirement age under Social Security, and a switch from defined benefit to defined contribution retirement plans.